Covered Call option

I have 1 lot (3000) of Ambuja cement bought @ 260.9

  1. Now if I sell the 275 call at 1.95 and it expires OTM will I get to keep the premium of 1.95 × 300 = 5850.
  2. And if the stock goes up to or above 275 (ATM/OTM) Can I sell the stock to make a profit. In that case what do I have to do with the option?
    Is this a good strategy?

If it expires OTM. Yes, you will get to keep the premium received.

If you haven’t pledged the shares for margin, you can sell them.

In case you are selling the underlying shares, if your Option expires ITM you will not have underlying shares to fulfill physical settlement obligation, in such scenario you will have to square-off your position.

That was my question. What do I have to do to make it a physical settlement? Will I make a profit if I go for physical settlement in this ITM option?

If you want to physically settle, your Option has to expire ITM ie. price of underlying should be greater than your Option strike price on expiry.

If your position expires ITM, as you have Short Call position you will be obliged to deliver underlying shares. For detailed information, you can read this.

You will be making profit on underlying but your Short Call position will be in loss as underlying price will be greater than your Short Call Strike Price.

As you have shorted 275 CE, if underlying is at 285 on expiry your position will be in loss of 10 * Lot Size.

As your are an option writter ( short call option) you will be making profit only when the contract expires worthless that is the current stock price will be below the strike price…

What if it expires at 275? What would be my break even? Would it be 275 + premium received? How do I carry out physical settlement?

Dude, go and read varsity first.
If stock settles at 285 you will get
285-260.90 profits in Stock
275-285+1.95 loss in option
So net is (285-260.90+275-285+1.95)

Now go and calculate.

For Short Call Option, Breakeven is calculated as Strike Price + Premium Received.

I’d suggest you to read Varsity, to get better understanding about Options.

If your Option expires ATM, for Short positions exchange does random assignment, we have explained it all here, it is long read but has detailed information regarding physical settlement.

To carry out physical settlement you don’t have to do anything, if your position expire ITM you just have to ensure you have enough shares to deliver or adequate cash to take delivery and depending on whether you are Long or Short the shares and proceeds will be credited to debited from your account.

you have lot to learn before getting into trading options… your questions are valid but why don’t you put some effort in learning rather than just asking questions, you can get answers for this things by yourself if you learn… people here do great job at explaining but we too should put effort in learning.

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Thanks. A good learning process involves asking a lot of questions and I think this forum from ZERODHA is meant for that. Can you name another platform where I can have my questions answered when learning. Thanks once again.

Don’t get demotivated by what other say, you can ask all your trading related queries here :slightly_smiling_face:

:+1: Thanks Shubh.

Just a head’s up.
many a times many questions remained unanswered as well!!
people ask but nobody gives damn!!

Although Mods are doing their best to satisfy each and every one!!

So its better to just read varsity first.

don’t get me wrong, i was just trying to encourage you to read and learn as well… nothing wrong in asking questions, infact we should always have curiosity to learn more :smile:

this is great place to interact with fellow traders but yeh others need to participate in discussion as well and make it even more educating.

agree about mods… they do good job answering queries here.

fancyy… thats what he is doing learning

No no no no!

Think again. He is relying on “others” to solve his query. It’s better if he put some efforts in learning “himself”

If you are skeptical about writing call 275CE , since it may become ITM , write far away ,say 290 CE or 300 CE calls and see , at any point of time you can square off your position!! if you are scared, @ShubhS9 clearly explained your query

I have a covered option on Ambuja cements. I have sold the 273 NOV CE at 2.60.
I bought 1 lot (3000 shares) of the stock at 260.90 which I have pledged.

  1. Do I have an increased margin requirement before expiry?
  2. If the stock goes up and I get assigned, will my pledged share get assigned or will I have to unpledge it before it gets assigned?

Yes, during last two days of expiry your margin requirement will increase to twice of SPAN + Margin requirments.

You will have to unpledge your shares before expiry day so they are available for physical settlement.